Memo To: John Rother, Director of Legislation and Public
Policy, American Association of Retired Persons From: Jude Wanniski
Re: Social Security

Your comments on the various suggested reforms
for the Social Security System in yesterday's NYTimes are practically
the only worthwhile comments in the batch. The idea of increasing returns to
the Trust Funds by having them invested in equity rather than government debt
is so inane I cannot believe the kinds of people who are lining up behind it.
The SSS is only in trouble if we as a nation refuse to allow the economy to
grow as fast as it is capable of growing over the next 75 years. If real GDP
would double in the next 15 years instead of the next 30, the population would
have $12 trillion per year to divide between public and private purposes
instead of $6 trillion. Under such circumstances, Social Security pensions and
Medicare payments could easily be met at existing benefit levels and at
existing tax rates or lower. The so-called "Advisory Council" was doomed to
failure before its first meeting because it was totally comprised of zero-sum
bean counters. There were no serious growth projections underpinning their
analysis. They took "realistic" actuarial assumptions about economic growth,
inflation and population growth that were essentially constructed around the
last 30 years of economic decline in the United States.

You must have
noticed that the supply-siders are almost uniformly opposed to the notion that
the CPI overstates inflation. We do so for the same reason we oppose the
various austerity solutions for SSS and Medicare. We should not be
concentrating our political energies on cutting back benefits and raising tax
rates until we have exhausted all opportunities to expand the economy through
long overdue fiscal and monetary reforms. GDP doesn't even have to grow faster
numerically for this to happen. AARP retirees are now living in a society that
is pouring enormous productive resources into a gigantic criminal justice
system and supporting many millions of lawyers and accountants just to collect
taxes. All of this is counted in GDP. The Boskin Commission is a fraud and a
hoax, appointed with full knowledge beforehand that it would bring back news
that we have been underestimating the health of the economy because we have
been overestimating the inflationary disease.

Have you discussed these
matters with Jack Kemp at Empower America? He and Steve Forbes have been in
the forefront of those Republicans who have been arguing against the idea that
the CPI overstates inflation and needs adjustment. If anything, it should be
adjusted upward.

We should encourage a new bipartisan commission that
has a chairman and staff that is open to the idea of economic growth as a
solution to the problems of the Social Security System. It can and should
remain a government social insurance system that provides a floor of pension
support for everyone in the American family. As the economy grows rapidly
without inflation, through supply-side tax and monetary reforms, the private
pension systems will grow atop that floor. Social Security benefits and their
projections deep into the next century now seem high relative to the economy
because our economy has been mismanaged for the last two generations — by the
same theoretical practitioners who now come forward with solutions. If AARP
would throw its weight behind growth reforms, we can stop all this talk about
the inevitability of bankruptcy.